Is it sensible to buy stocks/shares in companies who have suffered a fall in share price...?

Question

... in the hope of them recovering and making me a profit!?

Answer 1

I think the answer is basically yes, assuming you pick carefully. Yes, there's risk but it's pretty risky in my view to buy a stock that everyone is very keen on and the price is stratospheric as well ...

There is a famous investing strategy called 'Dogs of the Dow' for example where the (10?) worst performing stocks are bought at the beginning of every year and sold one year later which has consistently performed well and I think this result is also replicated in the UK for the FTSE 100.

When everyone is completely negative on a stock you can often buy it and hold and make a great return. People like Buffet and other 'value investors' have done so several times.

Often this is because the market is really negative on a whole industry which then tends to get factored into the price. What most people don't realize is that there are prices where it is worth buying almost any stock irrespective of the outlook for that industry. In the last few years you've seen widespread market pessimism about airlines (SARs etc), house builders, tech stocks, and at the moment newspaper stocks for example.

You've got to have a lot of guts though: typically it is hard to pick the bottom and a lot of good value investors will be confident enough that as the price of a stock they like drops further they will just keep buying so their average buy price for that stock falls. Thus it may make sense to buy a 'falling' stock in a series of smaller purchases.

Answer 2

Sure, XOM was selling for $5-$9 a share in the 80s and 90s. Apple I think slid greatly before the IPOD. The top sector right now according to barcharts.com is airlines. Not all companies come back though. It's a matter of why they went down. Drug companies are always suffering from lawsuits and trials that go nowhere and gaining from the next Advil or Viagra.

Answer 3

You will lose a lot of money if thats the only reason your buying the stock. You should know the reason the stock has taken a hit, and the reason it will recover. There are plenty of stocks that have been unjustly dropping but do some research before you put your hard earned money on the line.

Answer 4

It's a contrarian play, but yes, sometimes it is very sensible to buy a stock when it is 'on sale'.

Look at MOT and NOK the other day when they went down like 7% and then over the next few days came right back before giving it all back today. If you bought when it was down, you could have made 5-6% easy.

But don't commit all your money to bottom-fishing. You don't want to try to catch a falling knife!!!

Answer 5

Falling percentage expenditures do no longer count number at the same time as in a common trading variety because the cost of the percentage (like the cost of something else) is purely the nominal value someone is waiting to commerce for it on the prompt. although if the percentage value falls speedier than the common for that sector that is a trademark that the corporation is in hardship so banks & vendors gained't lend so actually & purchasers will carry lower back as worried about provider or wish to get a more suitable robust deal next month at the same time as the agency is in real hardship. generic falls in inventory expenditures creates a feeling of worry of lack of wealth so human beings panic and promote stocks at a loss which forces expenditures down & subsequently creates the envisioned loss in wealth which then switches shopper's paying for habit.

Answer 6

Do not buy a company just because it's shares are low - you would be surprised at how many go even lower. Buy good quality companies that are cylindrical and with time you will make a handsome profit.

Answer 7

Depends on the company, you need to look at management, good re-structuring, new products/service. Couple of these stocks that I made money at the end of last year was BBI and F.
AKAM is another company, and this is solid, a great company for long term.
Look into them and do your research.

Answer 8

Be careful bottom-fishing. Some stocks get beaten down for a reason. Look for a catalyst to reverse the trend, then get in. Good luck.

Answer 9

I suggest you to request the FREE DVD "The smartest guys in the room" at Peerflix before you go any further.